Finance Ch 14
What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%?
$20,352
An apartment property has a projected net income of $15,000 per year, and its projected net sales price after five years is $300,000. Considering its risk, you require a 14% annual return on this investment. How much would you be willing to pay for it today?
$207,306.81
An office building has a projected net income of $45,000 per year, and its projected net sales price after five years is $250,000. Considering its risk, you require a 16% annual return on this investment. How much would you be willing to pay for it?
$266,371.47
Kathy currently has $15,000. How much will she have after 8 years if she leaves it invested at 8.5% with annual compounding?
$28,809.07
You want to buy a new sports car five years from now, and you plan to save $5,800 per year, beginning today. You will deposit your savings at the beginning of each year in an account that pays 6% interest. How much will you have in the account after making the 5th deposit, 5 years from now?
$34,657
Noah wants to quit his job and return to school for a MBA degree at the end of two years. He plans to save and deposit $2,000 per month, beginning immediately from the beginning of first month. He will make monthly deposits in an account that pays 3% nominal interest(.25% monthly). Under these assumptions, how much will we have accumulated at the end of two years?
$49,529
You sold a car and accepted a note from the buyer that generates a cash flow stream of $1,000 in year one, $2,000 in year two, $2,000 in year three, $2,000 in year four, and $2,000 in year five. What was the effective price you received for the car, assuming an interest rate of 5.0%
$7,707
What is the present value of an income-generating property that is expected to produce an after-tax cash flow of $20,000 in year one, $22,000 in year two, $25,000 in year three, $30,000 in year four, and $30,000 in year five? Assume the discount rate is 15%
$82,532.27
Equity Real Estate Investment Trusts are REITs that invest in and operate commercial properties. From 2000 to 2006, equity REITs delivered an average annualized return of 22.9%. John invested $5,000 in equity REITs at the beginning of every year from 2000 to 2006. How much was his investment worth at the end of 2006?
$86,810.74
Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project?
$9,889.56
Educational Realty Corporation is considering a student housing investment which is expected to produce $41,000 at the end of every year for three years. If the company invests $100,000 today, what is the IRR of this investment?
11.11%
Linda is developing an apartment building in New York City that she expects to own for 10 years. She requires an 18% IRR on such an investment. The current 10-year Treasury bond (T-bond) yield is 4%. What is the required risk premium on Linda's investment?
14%
X Realty Corporation is considering an investment that has the following expected cash flow. What's the project's IRR? Year 0: -$1,500,000 Year 1: $400,000 Year 2: $400,000 Year 3: $500,000 Year 4: $800,000 Year 5: $100,000
14.61%
Tom is developing an apartment building in downtown Boston. He requires an 20% going-in IRR on the expected 20-year investment. The current 20-year Treasury bond yield is 3%. What is the risk premium on Tom's investment?
17%
Assume that an industrial building can be purchased for $1,500,000 today. The investment is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,625,000. Calculate the internal rate of return (IRR) on this investment.
6.78%
Calculation of the future value of a house in 5 years is growing at an expected rate is called ________.
Compounding
True or false: An ordinary annuity is defined as a fixed amount of money paid or received at the beginning of every period.
False
True or false: Ceteris paribus, a change in the discount rate affects a 15-year loan more than a 30-year loan
False
True or false: Theoretically, treasury bills are securities with maturity less than 1 year. They are typically viewed as riskless securities, therefore the return on them should be zero.
False
Future benefits are discounted because of _______.
Opportunity cost Risk
Which of the following characteristics describes the type of properties that are the focus of the quarterly RERC survey?
Relatively new Values greater than $10 million
The expected(required) IRR of an investment is composed of a risk-free rate and the required risk premium. The risk-free component is compensation of ______ of the investment.
Time
Which of the following statements is correct?
Timelines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.
In the context of the real estate appraisal business, the IRR is often referred to as the "total yield", which comprised of
appreciation yield current yield
Timelines are useful because they allow us to _______ the time pattern of money returns
visualize
